Hungary set to offer another small cut to the bank tax in 2017

By bne IntelliNews May 4, 2016

The Hungarian government will decrease the special bank tax to 0.21% on a tax base of assets above HUF50bn (€160.7mn), local press reported on May 4.

The 2017 tax package submitted to the parliament on May 3 shows that lenders will pay 0.21% on the tax base above HUF50bn (€159.7mn), and 0.15% on anything below that. The special tax on banks will also be levied on the balance sheet total of the preceding two years. Until now, the levy was based banks end of 2009 balance sheet total; in other words, before the Fidesz government took power and implemented several policies that have hit lenders' profitability.

The Hungarian government pledged to cut the controversial levy under a banking "peace deal" agreed with the European Bank for Reconstruction and Development (EBRD) in February 2015, as part of a deal to reinvigorate lending to the slowing economy. The EBRD emphasized in its latest country strategy, released on April 11, that it is ready to offer further support to the country's banking sector, but only if Hungary implements its commitments under the deal.

Between 2010-2015, lenders paid 0.53%, the highest sector levy in Europe, as the government sought to avert austerity measures and punish the banks. For this year, the top rate of the tax was cut to 0.24%.

Economy Minister Mihaly Varga said on April 15 that in 2017 a HUF20bn cut would be made. However, he failed to detail the new rate of tax. Hungary is currently juggling fiscal plans as it seeks to raise spending ahead of elections in 2018, which may have influenced the decision to offer no more than a small cut in the bank tax.

As part of the peace deal, the EBRD and Hungary agreed to each buy 15% in Erste's Hungarian unit. The seal is finally set to be put on the treaty in the coming weeks, according to the development bank.

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